Article on NHS funding by Philip Booth in The House Magazine

Philip Booth calls for a bold ramping-up of consumer choice in health provision, arguing that it would benefit both services and the citizen.

In recent research published by the IEA, it was found that opinion-formers in the health policy field were losing confidence in the NHS. This is an extraordinary result, given the strong vested interests that favour continuing with the status quo.

Nevertheless, the work explains how the Labour government has managed to make significant strides towards introducing competition and choice into the supply of health care. But more must be done to ensure that the consumer, and not the bureaucrat, is sovereign.

On balance, the reforms over the last 12 years are welcome, but sometimes one wonders whether the government has privatised the nationalised sector or nationalised the private sector.

Supply-side reforms can be taken further. Individual trusts must be given complete autonomy over terms and conditions of employment. National pay bargaining means that too few staff are prepared to work in high-cost areas such as London. In turn, low-cost areas are paying more for staff than they need to and budgets do not go as far as they should.

But the next big step must be to empower the consumer. Politicians claim that we cannot allow choice in health because of ‘market failure’. But in Britain we have such an extreme model of state-controlled healthcare that damage caused by government failure completely outweighs problems of market failure that could arise in a system designed with consumer sovereignty at its heart.

The Conservatives argue that power should be devolved to the professionals – to doctors and nurses. This is all well and good: professionals should have responsibility for clinical decisions. But, as far as wider aspects of health provision are concerned, power should belong with the people. It is only through real people exercising real choice with real money that resources will be directed to where they are desired.

It is not possible for politicians and administrators to know whether people want to spend more money and receive care at more convenient times and closer to home, or whether people want cheaper ways of providing care. The same applies with drugs. Given the option, it seems that people want to spend more money on innovative, risky drugs than the NHS allows, but would rather spend less money on branded drugs if cheaper alternatives are available. People should be able to exercise choice.

Also, the UK is renowned for healthcare inventions, but is far from the cutting edge in making available new forms of treatment.

This is because there is no effective mechanism by which signals about what is valued and cost-effective for patients can be translated into decisions relating to resource allocation. We still pretend that the man in Whitehall knows best.

How can change be brought about? Firstly, we could finance the NHS fully through the national insurance fund – even if that required a transfer into the fund from general taxation. We can then allow people to opt out of the NHS and give them actuarially fair compensation. Citizens could take that money and use it to buy private insurance – with certain policy terms being specified by government so that people would not fall back on the NHS having opted out.

Perhaps this could be done five or ten years at a time, with people buying private,level-premium policies for the full period. Crucially, the government must allow qualifying private policies to facilitate co-payment by the patient.

Health is an insurable risk but we know that many of the well known economic problems of health insurance are alleviated when the user of the service is making some contribution.

Would greater individual autonomy put us on the extreme liberal, free-market wing of developed nations as far as healthcare is concerned? On the contrary – it would simply take us closer to the Christian Democrat countries of the EU.

Would choice leave the poor behind? Certainly not. When I go to Tesco, my money counts the same as everybody else’s money. In the NHS, services benefit most those who can articulate their needs most effectively.

For decades, health provision in the UK has been supplier driven. The next government – of whatever party – must allow the consumer to fight back.

Professor Philip Booth is Editorial and Programme Director at the Institute of Economic Affairs.

Further reading:

Sixty Years On – Who Cares for the NHS? by Helen Evans.